Reimagining Retail: The Impact of Tariffs on Retailers – What to Expect & How to Prepare
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Hello, listeners. Today is Wednesday, March 5th. Welcome to Behind the Numbers, Reimagining Retail, an eMarketer podcast. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sarah Lebo. Today's episode topic is tariffs impact on retail in the U.S. and abroad. Before we jump into that incredibly simple topic, let's meet today's guests.

We've got some new ones on the podcast today, at least for the Retail Podcast. Joining me for this episode, we have Retail Podcast regular Rachel Wolff. Hey, Rachel. Hey, great to be back. Great to have you.

And then with us, we have some folks from our international desks. So we have our analyst who covers Latin American retail content, Mateo Cervels. Hi, Mateo. Hey, Sarah. Great to be here for the first time, actually, on this podcast. Yeah, great to have you. And then an analyst who covers content on our Canadian desk, it's Paul Briggs. Hey, Paul. Hey, Sarah. I think this is actually my second time on the podcast. You, me, and Susie talked Canada a while ago. That's right. So it's good to be back. Great to have you.

Okay, so today we're focused on tariffs. We are recording this on Monday, March 3rd, so tariffs on Mexico and Canada will theoretically go into effect tomorrow. That said, President Trump is speaking to Congress tomorrow, so he may be making some changes to that date. We don't actually know what will happen as a result.

Still, retailers need to be prepared for tariffs to go into effect. So we'll be discussing some potential outcomes despite or perhaps because of the uncertainty. With that out of the way, let's get into a quick civics class.

Rachel, for the U.S. perspective, can you give us a quick lowdown on what a tariff is and what Trump's proposed tariffs are? Sure. So at the most basic level, a tariff is a tax on imported goods, right? And it's usually paid by the company that's doing the importing. So at the moment, and as we said, this could change at any time, the proposed tariffs are a 25% tariff on all imports from Mexico and Canada and

And an additional 10% on Chinese goods. And that's on top of 10% that's already got into effect last month. And that's sort of, I guess, the beginning. You also have a proposed 25% tariff on all EU imports. There is a 25% tariff on steel and aluminum imports. And that's for all countries.

So there's a lot happening tariff wise. And even with that, just if that wasn't confusing enough, then we also have Trump is also floating some policy to treat the value added taxes. So that taxes like tariffs so that he's arguing that, you know, they act as like a

a sort of indirect barrier on US exports, but that'll have implications for more than 175 countries around the world that actually have that taxes. So just to add another layer of complexity to this already complex environment we're in.

Let me add another layer, folks. So I think one of the other areas of uncertainty is there could be a sliding scale of percentages over time, right? So it could start at 25%, and if certain conditions are met by the countries, it might slide lower over time based on increased border security or what have you. So there's a lot potentially at play, and it could change over time. I think it'll be an administrative issue.

nightmare for a lot of border agencies in terms of determining what the actual tariff application will be on certain goods and what the reciprocal conditions might be as well. Yeah, I think it's my turn to add one more layer there, which is the reciprocal tariffs. That's our uno-reversive tariffs. So once the U.S.,

If the U.S. implements tariffs on goods coming in from these countries, we will likely or perhaps certainly see tariffs on U.S. goods going into other countries as well. Yeah. And Canada has announced that it will match those reciprocal tariffs or enact reciprocal tariffs.

At the same level and across many of the same goods and services. So that just becomes a trade war and it's probably puts a lot of pressure on economic performance. Yeah. All of this is to say the globalized supply chain we've got right now is about to get a lot more expensive. Yeah.

But we don't actually know when it's going to get more expensive. Maybe at the time of this podcast, we'll have some idea. But why is it so hard to plan for these tariffs right now? I think it's just that nobody knows what's going to happen and when. I mean, we've already had a 30-day reprieve on Mexico and Canadian tariffs.

And, you know, I think everybody's just waiting until the last possible minute to figure out, will these actually go into effect? Will they be as broad as the administration has promised? Or will there be carve outs for certain industries like the auto industry, which desperately needs them? So there's just a lot of questions that companies have.

Yeah, it's even that. And it's just the general nature of the uncertainty. I mean, one minute, you know, even if we zoom back to earlier this month, it was, I think it was a Saturday. Towers were announced on Mexico, maybe like two hours later. Oh, nevermind, they're paused. So I think it's also, you know,

Even if the tariffs do go into effect, what's to stop them, say, a day, a week later from them rolling back or changing again? So it's very hard to plan when you're in such a volatile environment where you don't actually know what will be the final, final end result of it.

Yeah, I think the auto industry is a great microcosm of that. Well, macrocosm, I guess, even though we don't cover the auto industry all that often on this podcast. I think it sums up what could happen, which is that you have a supply chain that goes back and forth between countries.

several times before the final product, the car, actually comes onto the market, which means that tariffs could be potentially taxing production multiple times. And then you also have huge, massive lobbies at play. So even if the tariffs go into effect, likely the lobbyists will have something to say about it, some power over it. And in particular, one of these, maybe not lobbyists, but people involved, Elon Musk, is also...

advising the president? Is that what we're going to call it? So all of that to say is the tariff policy won't be the final thing

action on tariffs. There will be more to come after they're announced. Right. And, you know, there's also the fact that the administration is using these tariffs as a negotiating tactic, right, to get what they want out of other countries. And so for that reason, again, it's difficult to know exactly how it's going to play out. You know, what is it that the U.S. wants to extract and how are they going to apply the tariffs to get that?

But on the auto note, I saw this study that said auto prices could rise as much as $12,000 as a result of the tariffs. And if you think about how expensive it already is to buy a car, I mean, that just sounds pretty remarkable. Yeah. I mean, that's the price of a car depending on who you're asking. Or it's the price of several cars or it's the price of a fraction of a car depending on who you're asking. Yeah.

Yeah, the audio industry is a great example. I think the North American audio industry was basically built on free trade between Canada, Mexico, and the US.

How they build cars is predicated on the fact that there's no tariffs across borders. So they build supply chains that allow, I think there's estimates that say an average park crosses the US-Canadian border or Mexico crosses a border seven or eight times before it's actually put into final assembly in a car. So that is a supply chain that is completely integrated without a border in place. And I think it would be very crippling if these tariffs were

Yeah. I mean, let's let's jump into that supply chain conversation a bit more. We talked about the auto industry, but this is the case across the board. Right. We have a lot of industries where parts or products are crossing borders between the U.S. and Canada and Mexico right now. So how will the supply chain be impacted?

How will this weigh on U.S. retailers? Well, one thing I think, you know, just talking about, I guess, the Canada and Mexico piece is that a lot of retailers were in the process of nearshoring their supply chains in part to get around tariffs on China. But if imports from Mexico are now going to be taxed, what does that mean for those plants? Does it just become a sunk cost for these companies? Right.

And do you now have to shift out of Mexico again and go either back to China or to Vietnam or find another more cost-effective solution? Nearshoring, meaning moving that production to North America, not necessarily to the U.S., but to North America. Or closer to North America. But that also begs the even broader question than you have...

We have nearshoring and then you have reshoring where it's OK. Now Trump wants to lower the corporate tax rate from 21 percent to 15 percent as part of this whole lure to bring manufacturing and bring those manufacturing jobs back

into the U.S., but again, then it becomes a bit of accounting to see, is it more cost effective to pay the higher labor costs in the U.S. by reshoring? Or do we as a retailer eat the costs or eat the higher costs of nearshoring and say a Mexico or another less tariff impacted country in this hemisphere? Or does it still, despite all the tariffs, does it still make sense with the China tariff, with the logistics cost to ship it,

is it still more cost effective to manufacture in china or asia so there's a lot of you know a lot of variables retailers are going to have to weigh and consider to see really what is the most cost effective solution for other operations in this tariff in this basically global trade war really

Yeah. And on that note, it is cheaper for a lot of retailers to just swallow the cost of China tariffs and continue to manufacture in China. And that's also because Chinese manufacturing has dominated the world for a reason. They have capabilities that, you know, manufacturers in other countries, including the U.S., just don't have. And so for some retailers, you don't have a choice. You're stuck with, you know, China or maybe Vietnam manufacturing.

But you still have to swallow that cost in some way. And then the question becomes, how much of it do you pass on to the consumer? Yeah. I mean, so let's talk a little bit about what will happen if tariffs are implemented in countries across North America. And let's go north to south here. How will tariffs impact Canada if they're implemented?

implemented, Paul? Yeah, I think it's going to trigger if it's a 25% tariff starting this week and that doesn't come down, it's going to trigger a recession almost immediately. Obviously it takes time for a recession to be declared, but two quarters of negative growth, but the bank of Canada expected before the tariff statements from, from president Trump, the bank of Canada expected Canadian GDP to grow 1.8% in 2025.

Their estimates, if these tariffs come in as they're presently stipulated, it will lower that by 2.5%. So effectively, what is that? 0.7% negative growth in the Canadian economy based on the tariffs alone. So that's year one. So year two, it's slightly less, but still we're looking at two years of really, really hard economic times.

Canada's an exporting country, you know, 75 to 80% of what Canada exports goes to the US. So it's that relationship is critical to the economy of Canada. And I think it's going to be very substantially felt across the board in Canada if these tariffs go in as presently stipulated.

Yeah. And Rachel, I'll have you speak to this, but is that a recession that could spread to the U.S. as well? I know I heard New York Times columnist Jamel Bouy say that it feels like the Trump administration is doing all it can to trigger a recession in the U.S. Yeah. I mean, I don't know that I would go so far to say that it would cause a recession in the U.S., but certainly it's going to create a very difficult environment, speaking specifically about consumer spending, right? Like,

consumers have been hammered by inflation over the past couple of years. And now you have the prospect of even higher prices on grocery items, your avocados, your fruit, your wheat products, all of those things are going to get more expensive. And consumers have already been pulling back spending in anticipation of that happening. So I think it's definitely going to be a very difficult landscape for retailers to navigate. I guess as one stat,

the 25% tariffs on Canadian Mexican imports. And this is not taking into account an additional 10% tariff on Chinese imports, but that would add an extra $3,300 or so to annual expenses for a family of four. Wow. So, you know, that's a hefty sum. And when you're faced with that, that means you cut back in other ways. You cut back on discretionary spending, on travel, on all of those things. So it could be a pretty big hit.

Yeah. I mean, that figure you just said, like $3,000, that's like 10% of the median family income in the U.S. So that's a lot of money. Yeah. I guess it's probably a little less than 10% if the median income is around $40,000, but it's still significant for sure. Yeah.

Well, we don't have time to get into it right now, but if at the same time you're seeing mass deportation in the U.S., then you also have a potential labor shortage that is also impacting a lot of the prices on those goods, especially the agricultural ones like you just mentioned. Yeah.

Mateo, that brings us down to Mexico. What will we see happen there? Yeah. So, I mean, I think earlier this year I read a stat that if the tariffs went into effect, it would basically shrink the Mexican economy by 1.9 percent. So there is that definite economic concern on that end. But I'll flip it, you know, the discussion more for our listeners.

more likely are listener-based right now, probably those US retailers, US brands. So the flip side of all of this is, is if you have more expensive, you know, all the governments, Mexico and the like, you know, you put a tariff on us, we're going to clap right back and put a tariff right on you. So that's just political, you know, game theory 101. Here we go. But that means then US brands are going to be inherently more expensive. And

Consumers in Mexico, consumers in the rest of Latin America, they have options. China is still an option. Europe is still an option. And then you're going to be coming into this, what do you, the consumer, value more? Your quality, your value, or the like.

And I think it's an interesting thing we're going to start seeing playing out where at least in the data that surveys we have done, we see that Latin American consumers, when they think of value, like how do they view products they purchase from, say, China or the US, consumers really do value products from China, but they're

Latin American consumers, you know, perceive U.S. products that be a bit higher quality. So it all goes into that, you know, what is that balance of how much are you going to pass on to the consumer in terms of these costs to make sure that they don't necessarily trade down to a cheaper alternative? And then, you know, how do you underscore that brand loyalty to then keep consumers in the fold despite these higher costs? So overall, it's definitely going to create a new, definitely a more challenging situation

environment for U.S. brands to remain competitive, especially in Mexico. And we're also seeing in Mexico specifically kind of the boycott on U.S. products where buy Mexican, buy locally. You know, if you look at Google search, that was Google search trends. I mean, we did see a massive spike in buying locally, local products and, you know, this buy Mexican concept. Yeah. That's been across the headlines for Canada as well, right? We're seeing this up

Yeah, for sure. I think, you know, like there's an app for being able to identify Canadian goods. So sometimes it's hard to tell where something's from. So there's been a few apps that have been launched for that. Retailers are using in-store signage to highlight what's from Canada and what's not from Canada. And so it's really important to have that in your mind.

So there's definitely a big sentiment. It's anti-US sentiment, quite frankly. You know, we talked earlier about or on a preparatory call about the fact that there was a big hockey game between Canada and the USA a couple of weeks ago in Montreal and the US anthem was booed.

Pretty loudly by the crowd. So, which is unheard of, but it's a reflection of, you know, anti-U.S. sentiment in Canada right now as a result of these tariffs. What's so important about these sentiments to me is that these are the impacts that are happening before tariffs are even in place. So we're talking so speculatively right now. We don't know what's going to happen. We don't know when it's going to happen, but the impacts are already happening. We're seeing anti-U.S. or bi-local sentiments in other countries. And then in the U.S., we're seeing a

ton of anxiety around tariffs. I would guess the average American doesn't necessarily know if or when tariffs have gone into place, but they know that they are being talked about and they're starting to know more and more, I think, that they're going to increase prices.

Yeah, I mean, there was a stat, I think 43% of people are already seeing tariff-related price increases, which is pretty remarkable. Again, it just shows that tariffs are top of mind for all consumers at this point, regardless of your political affiliation. Yeah. Mateo, you said something that really resonated with themes that we've been talking about on this podcast for months now, which is that I think as a brand, you can no longer rely on undercutting your competition, and tariffs only underscore that.

You need to make sure that you have a loyal customer base or you're trying to have a loyal customer base because you're not going to be able to slash prices forever. And especially as you're eating costs of these taxes, you need to make sure that you have customers that are going to be willing to spend a little bit of money with you because you can't undercut forever. I guess that's my question to you. How urgently should...

brands and retailers be preparing for tariffs and what are some steps they should be considering? I mean, definitely it has to be very top of mind, especially in these markets that are, you know, I look at the urgent markets, the Canada, U.S., and that's right now this week. But, you know, Europe is on the table as well in the imminent near future. I think the VAT, the ones with the VAT, that's like for early April. So next month. I mean, these are all on the horizon and such.

So I think for a brand, for a retailer, it's really understanding some little bit of introspection and really understanding what is your brand value and how do you highlight those key differentiators that make your brand unique, essentially to prevent your loyal and price sensitive consumers from finding a lower cost alternative. Because again, in this globalized world,

Every product has an equal or cheaper alternative, you know, whether it's your smartphone, your computer, the clothing you wear, no matter where you buy it from, there is another alternative, be it more expensive or cheaper. So it's understanding that and understanding, you know, on the supply side, the planning side, really understand where you as a retailer and a brand are able to optimize those

key operational portions, whether it's near shoring, whether it's reshoring, or whether it's just keeping your operations as it is, as they are. And I think also lastly, from navigating the landscape, it's also being aware of

of what's happening not just in the us but in all these mark or all the main markets that you're in and understand trying to identify where are some key markets that you can still get into because let's just say hypothetically you know or let's just say mexico gets hit with tariffs but maybe argent you know i'll use argentina you know their president trump are a bit more ideologically the same in terms of that so and the argentina president's trying to open up the economy so

If you, U.S. brand, aren't able to sell necessarily in Mexico, maybe you'll be able to find a market in Argentina. And that goes really with any of these markets. And we do see those dynamics playing out at the government level, at the presidential level, really, where

We see Mexico and the European Union restarting or fast-tracking talks to help get some free trade. We see the medical sewer trading block in South America. They finalized a trade accord with the EU as well. So there is that possibility. Canada as well. I've been seeing some news floating around. Will Canada join the EU apparently?

Or how is Canada looking to Europe or in Europe looking to Canada as a way to kind of just sidestep the U.S. altogether? Since, you know, Canada and the EU do share several political ideologies and alignment on many things. So it's a very shifting landscape. But I think paying attention to the news, understanding your brand.

and evaluating those, those supply chain flows are really three key areas to hone in on just to really navigate these uncertain times. Yeah. Anything to add there on what brands can be doing to prepare right now from Paula, Rachel? Yeah, I think in Canada, I,

What I'm seeing is marketing campaigns and messaging from retailers that is really aimed at that sentiment in the consumer base right now. So really highlighting Canadian made goods and services. So I think that is smart for retailers is to kind of understand how the consumer base is feeling.

and designing marketing programs that really speaks to that sentiment. So I think that's one big area that, you know, it's already starting, you know, frankly. But I think, you know, if this is a prolonged situation, I think that'll be a go-to strategy. Yeah, I agree. I think, you know, in the U.S., I think a lot of it is going to be dusting off the inflation playbook, right, for these companies. If prices are going up, then how do you convince people to buy something? How do you convince them of the value of

And I think like, for example, Chipotle is taking an interesting tack by saying we're not going to raise prices. You know, we're going to hold firm on avocados as long as we can. And, you know, that's a great way to get people to stay loyal to your brand if they feel like, yeah, you know, this company is doing all they can to shield me from potential tariffs.

Yeah, I just want to underscore like everything you guys just said, because I think you just created a great playbook, which we have introspection on brand value, highlighting differentiators and preventing down trading, understanding where you as a retailer can optimize your supply chain, being aware of what's happening in key markets and where you can still grow, paying attention to consumer sentiments and marketing that way, and looking to previous inflationary plans and being ready to be agile.

That's so helpful. Okay, well, that is all we have time for today, but we covered so much. Thank you all for being here. Thank you, Rachel. Thank you. Thanks, Paul. Thanks, Sarah. And thank you, Mateo. Thank you, Sarah. Thank you to our listeners and to our team that edits the podcast. They are terrific. That's my only tariff pun. I held off for most of the episode. Wow.

We'll be back next Wednesday with another episode of Reimagining Retail, an eMarketer podcast. And on Friday, join Marcus for another episode of the Behind the Numbers podcast.